Every passing year has kept us on our toes to know how the new year will turn out. We make resolutions (and break them!) every year and try to hang on to them during the first few months (or, maybe, days?). Sadly, we all witnessed ‘2020’ together, where most of us could not keep up with our resolutions. At the same time, we also learned a huge lesson regarding our financial planning effectiveness this year.
With the fear of this new variant of COVID-19 spreading, we have to buckle up and keep our investment plans on the check to avoid the misery we went through in 2020. We hope that COVID-19’s sibling would not create as much chaos as COVID-19 did, we must make some investment resolutions and keep them up throughout the year 2021 and ever after for our own good.
Come on, it’s time to take these oaths with me:
1. I will set S.M.A.R.T. financial goals
Setting up financial goals is understandable. But, what are S.M.A.R.T. financial goals? S.M.A.R.T. is a mnemonic acronym that stands for Specific, Measurable, Actionable, Realistic, and Time-bound. Though the acronym’s definition is a little flexible, it can be used as a guide for goal setting across sectors.
In this context, keep your goals specific and clear. Otherwise, you will lose your focus to achieve the goals half-way through. Answer these five ‘W’ questions to keep your goals specific and clear:
- What do I wish to accomplish?
- Why is this goal important to me?
- Who all does this goal affect?
- Where should I begin?
- Which resources and limits are involved?
Keep your financial goals measurable. Do not randomly invest surplus money in something that looks attractive at first sight. Address questions, such as:
- How much of my funds does this require?
- Will I be able to keep up my other commitments if I take this new goal up?
- Is this the best investment among its counterparts and by how much?
Be realistic when it comes to setting up goals. Though people can travel to the moon, it is not yet realistic enough to live on the moon. Weigh the constraints and the opportunities before taking a goal up. At times, something that is realistic may not be your regime. Think twice and figure out if that financial goal is achievable/actionable for you.
Similarly, set up a practical target time frame to achieve your goals. You may be very punctual, but there definitely will be some unexpected hurdles in the way. Keep a realistic buffer time while calculating the deadline for your goal, so you need not feel like a failure in case of any surprises.
2. I will save and invest regularly
Savings and wealth creation are two parallelly important spheres for a secured financial future. It doesn’t matter if you are interested in investing your money. Saving money can be done simultaneously. This is more of diversifying your portfolio and having some liquid funds by your side when needed. Saving and investing regularly and systematically with discipline can take you places.
Systematic Investment Plan (SIP) is one great instrument that is lighter on your pocket, has the potential to manage market volatility, and lets you build investment corpus without locking up the funds. On the other hand, a recurring deposit (RD) account allows you to build regular saving habits and provides fixed returns suitable for short-term financial goals.
Also, you can try opening a Flexi-fixed deposit account that is linked with your savings account. Whenever there are surplus funds in your savings account above a threshold limit, the excess funds will be automatically transferred to the FD account, and a higher interest rate is offered. Whenever the savings account balance goes below a threshold, funds from the FD account will be auto-transferred back to the savings account. Sounds interesting, right?
3. I will legally save tax to the max
For the general public’s benefit, the government offers several deductions, exemptions, and reliefs under the Income Tax Act, 1961. The first step towards utilising them is to get educated on them. Learn all the criteria applicable to using these deductions and exemptions and make the most of it.
You can invest in tax-saving instruments, such as Sukanya Samriddhi Yojana if you have a girl child, National Pension Scheme (NPS) if you are looking to build a retirement corpus, Equity Linked Saving Schemes (ELSS), and other options based on your financial goals.
Do not delay planning your tax-saving investments until the last minute. Plan them at the earliest to have enough time to make any adjustments and prepare for the tax liabilities. We know that a penny saved is a penny earned. Agree? It is equally important to keep the horizon of saving taxes within the legal limits!
4. I will review my investments regularly
Setting up financial goals; opening SIP, FD, and RD accounts; planning the tax-saving investments are all fair enough. Isn’t it necessary to keep up the zeal until the end of the game?
It isn’t always possible to cook something delicious by just adding all the ingredients at once and closing the lid, right? You have to see if the dal has turned golden brown and add the next ingredient. Keep a watch on how it looks and smells, and even increase and decrease the flame.
Similar logic applies to investments as well. You have to keep a close watch on how your investments are performing, invest more on a fund that’s picking up its performance, quit when the fund has achieved its peak point, invest when the fund’s price has fallen, etc. Even if you are not a very active investor, we recommend reviewing your investments once or twice a year and re-balance the portfolio based on market changes or goal changes.
5. I will take care of investment documentation
People, like the previous version of me, will take extra care to choose investment products and allocate assets to these products. However, they miss out on being careful about managing the related documentation. Though most of us make investments online, and there is less hassle managing the physical documentation, it is equally important to keep the online documents and files organised on your devices.
Make sure to arrange the documents according to the financial year in which investment was made. Maintain a log file with the dates of investments, the maturity date, investment type, invested amount, maturity amount (if any), and the concerned documents’ file location. This will make your ITR filing and other financial planning aspects much simpler and hassle-free.
Apart from these resolutions, you may also take an oath to build an emergency fund if you do not already have one. You may also take an oath to protect your family’s future through family life cover. Further, you can come up with your own financial resolutions that are specific to your life. Let us stay true to our investment resolutions and achieve everything we are dreaming of. Happy and Prosperous, 2021!
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